Staples Upgraded to Neutral - Analyst Blog
December 28 2012 - 9:00AM
Zacks
We upgrade our recommendation on
Staples Inc (SPLS) to ‘Neutral’ from
‘Underperform’ with a target price of $12.00, following its bottom
line results during the recently concluded quarter and the
strategic initiatives taken by the company to boost the financial
results.
Staples posted third-quarter 2012
earnings of 46 cents a share, beating the Zacks Consensus Estimate
by a penny. Management expects bottom line to increase in the
low-single digits for fiscal 2012.
Staples now focuses on improving
store productivity by generating incremental sales per store,
accelerating growth in adjacent categories, increasing market share
in core office supplies, reviving international operations, and
streamlining its cost structure. Through its cost-cutting
endeavors, the company intends to save approximately $250 million
annually by the end of fiscal 2015.
Being a leading retailer of office
products and services, Staples is better positioned than its
competitors, OfficeMax Inc. (OMX) and
Office Depot Inc. (ODP), to sustain its growth
based on effective merchandising, increasing customer awareness,
enhanced online features, expanded assortments and store
refurbishing program. The company is gradually lowering its
exposure to less profitable ventures and eyeing opportunities with
lucrative growth prospects to augment profitability.
However, the quarter’s downside was
the 2% decline in total sales to $6,353.1 million. Moreover, the
reported revenue came well below the Zacks Consensus Estimate of
$6,461.0 million. Management anticipates fiscal 2012 sales to
remain at par with the prior-year level.
Alongside, gross profit for the
quarter decreased 3.8% year over year to $1,751.9 million, while
gross margin contracted by approximately 50 basis points from the
prior-year quarter to 27.6%. Operating profit decreased by
approximately 5.5% to $500 million, whereas operating margin
contracted 30 basis points to 7.9%.
Going forward, we remain cautious
on the macroeconomic environment and a sluggish job market, with
small businesses and consumers still remaining watchful on their
spending.
Currently, shares of Staples hold a
Zacks #2 Rank that translates into a short-term “Buy” rating, and
well defines the slew of measures undertaken by the company to
uplift itself.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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